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2020 (10) TMI 1324 - AT - Income TaxDisallowance on account of commission paid to various parties for rendering various services - assessee contended that the said expenditure was allowable u/s 37 as the said expenditure was wholly and exclusively incurred for the purpose of business of the assessee and therefore covered u/s 37 - A.O disallowed the said commission on the ground that assessee has failed to furnish the evidences corroborating that the said expenditure was incurred for the purpose of business wholly and exclusively or out of the business and commercial consideration - HELD THAT - We observe that in this case the Coordinate Bench in assessee s own case in A.Y 1988-89 has decided the issue in favour of the assessee whereas, the issue has been decided against the assessee in all subsequent years commencing from AY 1994-95 to 1999-00. Since all the assessment years right from AY 1994-95 to 1999-00 the issue is decided against the assessee, we, therefore, respectfully following the decisions of the Coordinate Benches from AY 1994-to 1999-00 uphold the order of CIT(A) on this issue by dismissing the ground raised by the assessee. Addition u/s 40A(9) of the Act in respect of contribution to Utmal Employees Welfare Fund - HELD THAT - We find that the issue is squarely coved in favour of the assessee by the decision of the Coordinate Bench of the Tribunal in assessee s own case for the A.Y 1994-95 to 1997-98 and 1999-2000 - Since the facts are materially same, therefore, we are inclined to set aside the order of CIT(A) on this issue and direct the A.O to allow the deduction towards contribution to Utmal Employees Welfare Fund. Accordingly the ground No. 2 raised by the assessee is allowed. Disallowance on account of expenditure incurred in relation to oil exploration u/s 42 - CIT(A) confirmed the order of the Assessing Officer by holding that the word used denotes actual usage and not merely ready for use and as the actual usage happened in the next assessment year, deduction under section 42 of the Act would not be allowable in the current assessment year and would be allowed in the following assessment year - HELD THAT - After hearing both the parties and perusing the language of section 42(1)(b) of the Act, we observe that the language of section 42(1)(b) provides that deduction of any expenditure incurred by the assessee, whether before or after such commercial production in respect of drilling or exploration activities or services or in respect of physical assets used in connection with business except the assets on which depreciation is admissible under section 32 of the Act. After carefully analyzing the provisions, we observe that in the section that the expenditure on acquiring asset is to be allowed when such expenditure is incurred on acquisition of asset which is used in business of the assessee. In the present case the assessee incurred Rs. 54,72,697/- on acquisition of asset which was used for the purpose of business in the assessment year 2001-02. The Ld. CIT(A) has opined that the term used in the language of the section denotes actual usage and not ready to use, which in our opinion is correct. In this case, we observed that the section does specify the use of the said assets which has to be the year in which the asset is used for the purpose of business. Accordingly, we inclined to uphold the order ld. CIT(A) on this issue by dismissing the ground no. 3 raised by the assessee. Nature of expenditure - expenses towards obtaining a license to use SAP-R/3 software and its implementation in the organization by treating the same as capital expenditure - HELD THAT - After hearing the rival parties and perusing the material on record, we observe that the issue is squarely coved in favour of the assessee by the decision of Coordinate Bench in assessee s own case 2018 (4) TMI 385 - ITAT MUMBAI to hold that the expenditure incurred by the assessee on computer software is revenue in nature. Disallowance u/s 14A of the Act on account of interest - HELD THAT - As decided in own case 2018 (4) TMI 385 - ITAT MUMBAI investment in tax free securities coming out of assessee's own funds in case the same are in excess of the investments made in the securities (notwithstanding the fact that the assessee concerned may also have taken some funds on interest) applies, when applying Section 14A of the Act. Thus, the decision of this Court in HDFC Bank Ltd. 2016 (3) TMI 755 - BOMBAY HIGH COURT for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power Ltd.. while 2009 (1) TMI 4 - BOMBAY HIGH COURT considering Section 36(1)(iii) of the Act would apply while considering the application of Section 14A - Decided in favour of assessee. Addition on account of gain on extinguishment of sales tax deferred loan liability - Capital or revenue receipt - HELD THAT - The assignment has not been accepted by the Sales-tax Department and, therefore, there is no question of cessation or remission of the liability.Besides the deemed loan from the Sales-tax Department is not a loss or expenditure or a trading liability and, therefore, the provision of section 41(1) of the Act is not applicable. The sales-tax originally collected by the assessee was an expenditure which has been allowed to the assessee by treating it as a deemed loan. Once the said amount has been treated as a loan, it loses its characteristic of sale-tax liability. Such deemed loan is not a loss or expenditure or a trading liability and, hence, does not come within the ambit of section 41(1) of the Act. In the present case the pre-payment of a deferred sales-tax loan liability at the net present value, does not result in any benefit to the assessee. Besides the case of the assessee is squarely covered by the decision of the coordinate bench in Cable Corporation of India Ltd. 2019 (7) TMI 167 - ITAT MUMBAI wherein on identical facts, the Tribunal has concluded that the assignment of such liability, at the net present value, cannot be charged to tax either under section 41(1) of the Act or under section 28(iv) of the Act.The provisions of section 28(iv) of the Act are not applicable to the facts of the present case as monetary benefit is not covered by the said section. In the present case of the Appellant, the Appellant has, in fact, paid a consideration to the other Company for taking over its obligation, which amount is lesser than the amount payable to the Sales-tax Department. . This issue is covered in favour of the assessee by the decision of the Apex Court in the case of CIT vs. Mahindra Mahindra Ltd. 2018 (5) TMI 358 - SUPREME COURT wherein the Apex Court has held that waiver of loan is a monetary benefit and, hence, it does not come within the ambit of section 28(iv) of the Act. Therefore, the amount is to be regarded as capital receipt which is not chargeable to tax. Computation of deduction u/s 80HHC as made by the AO by rejecting the manner of computation by the assessee - Appeal decided in favour of assessee Re-computation of claim of deduction under section 80IA of the Act by ld. CIT(A) as made by the AO qua captive power plant - HELD THAT - We observe that the issue is covered by the jurisdictional high court decision in the case of CIT vs. Reliance Industries Ltd. 2019 (2) TMI 178 - BOMBAY HIGH COURT in favour of the assessee wherein on identical facts, the High Court has held that deduction under section 80IA of the Act is to be computed at the rate at which the electricity is supplied to the consumers and not the rate at which the board purchases the electricity. Adjustments/additions for the purpose of computing book profit u/s 115JA - Disallowance u/s 14A, Reduction of deduction u/s 80IA relating to profits of power generation operation from captive power plants, Disallowance u/s 80-IA relating to profits of power generation operation through DG Sets and Disallowance of deduction of tax paid u/s 115-O on distributed profits - HELD THAT - The issue of adjustments made under section 14A of the Act will not survive as we have deleted the addition under section 14A in our decision in ground no. 7 supra/. Moreover the issue is also covered by the decision of the coordinate bench in AY 19999-00 - Similarly the issue of profits derived from DG sets not allowed as reduction from book profit u/s 80-IA is covered in favour of the assessee by the same decision of the coordinate bench in AY 1999-00 -Therefore the adjustments on account of disallowance under section 14A and profits derived from DG sets not allowed as reduction from book profit u/s 80-IA are allowed in favor of the assessee. The third adjustment on account of disallowance of Deduction of tax paid u/s 115-O while computing book profit is covered against the assessee by the order of the coordinate bench for AY 1999-00 - Accordingly the issue is decided against the assessee. The ground is partly allowed. Claim of deduction in computing book profit under section 115JA of the Act under section 80HHC based on book profit and not tax profit - HELD THAT - We find that the issue is arising out of the records before the authorities below and does not require any verification of facts or details. We are therefore admitting the same and restoring to the file of the AO to examine and decide as per facts and law. The additional ground is allowed for statistical purpose. Reduction in depreciation arising on account of AO's action to disregard transfer of Bangalore undertaking as 'slump sale' - HELD THAT - After hearing the parties and perusing the decision of the tribunal in AY 1998-99 has granted relief to the assessee by treating the transfer of Bangalore undertaking as a 'slump sale'. Hence, the consequential reduction in Depreciation by the Department in all subsequent years needs to be eliminated. We are therefore directing the AO accept the depreciation as calculated by the assessee. The additional ground is allowed. Addition made by the AO on account of Interest on borrowed funds for setting up new cement plants - HELD THAT - We find that issue is settled in favour of the assessee by the decisions of the coordinate benches in assessee own case right from AY 1994-95 to 1999-00 which were upheld by the Hon ble High Court. Addition on account of VRS expenses - CIT(A) allowed the appeal of the assessee on this issue by holding that entire VRS expenses were allowable in year it is incurred. Thus, VRS payment even if treated as deferred revenue expenditure by the assessee are allowable in the year in which they are incurred - HELD THAT - After considering the rival contentions and perusing the facts of the assessee in the light of the jurisdictional High Court in the case of CIT Vs Bhor Industries 2003 (2) TMI 20 - BOMBAY HIGH COURT we are inclined to dismiss the ground no. 3 raised by the revenue as the issue is squarely covered in favor of the assessee.
Issues Involved:
1. Disallowance of commission paid. 2. Addition under section 40A(9) for contribution to Utmal Employees Welfare Fund. 3. Disallowance of expenditure on oil exploration under section 42. 4. Treatment of expenditure on SAP R/3 software as capital expenditure. 5. Disallowance of interest expenditure under section 14A. 6. Addition on account of gain on extinguishment of sales tax deferred loan liability. 7. Computation of deduction under section 80HHC. 8. Re-computation of deduction under section 80IA for captive power plant. 9. Rejection of deduction under section 80-IA for Captive power Generating (DG) units. 10. Adjustments for computing book profit under section 115JA. 11. Additional grounds regarding deduction under section 80HHC and reduction in depreciation. Detailed Analysis: 1. Disallowance of Commission Paid: The assessee's claim for commission paid was disallowed by the AO for lack of evidence. The CIT(A) upheld this disallowance based on previous decisions. The Tribunal noted that similar issues had been decided against the assessee in prior years and upheld the CIT(A)'s order, dismissing the assessee's appeal. 2. Addition under Section 40A(9): The CIT(A) confirmed the addition made by the AO for contribution to the Utmal Employees Welfare Fund. The Tribunal, however, found that the issue was covered in favor of the assessee by previous decisions and directed the AO to allow the deduction, reversing the CIT(A)'s order. 3. Disallowance of Expenditure on Oil Exploration: The AO disallowed the expenditure on oil exploration under section 42, arguing that the assets were used in the subsequent year. The CIT(A) upheld this view. The Tribunal agreed with the CIT(A), stating that the term "used" denotes actual usage, and upheld the disallowance for the current year, directing that the deduction be allowed in the subsequent year. 4. Treatment of Expenditure on SAP R/3 Software: The AO treated the expenditure on SAP R/3 software as capital expenditure. The CIT(A) upheld this decision. The Tribunal, referencing previous decisions, concluded that the expenditure was revenue in nature and directed the AO to allow it as such, reversing the CIT(A)'s order. 5. Disallowance of Interest Expenditure under Section 14A: The AO disallowed interest expenditure under section 14A, attributing it to investments in tax-free bonds and shares. The CIT(A) upheld this disallowance. The Tribunal found that the issue was covered in favor of the assessee by previous decisions and deleted the disallowance, reversing the CIT(A)'s order. 6. Addition on Account of Gain on Extinguishment of Sales Tax Deferred Loan Liability: The AO treated the gain on extinguishment of sales tax deferred loan liability as revenue receipt under section 41(1). The CIT(A) upheld the addition but under section 28(iv). The Tribunal, referencing Supreme Court decisions, concluded that neither section 41(1) nor section 28(iv) applied, and the amount was a capital receipt not chargeable to tax, reversing the CIT(A)'s order. 7. Computation of Deduction under Section 80HHC: The AO made several adjustments to the computation of deduction under section 80HHC, which were upheld by the CIT(A). The Tribunal, referencing previous decisions, decided various components of the computation in favor of the assessee, remanding some issues to the AO for reconsideration. 8. Re-computation of Deduction under Section 80IA for Captive Power Plant: The AO computed the deduction under section 80IA at a lower rate. The CIT(A) upheld this computation. The Tribunal, referencing jurisdictional High Court decisions, concluded that the deduction should be computed at the rate at which electricity is supplied to consumers, reversing the CIT(A)'s order. 9. Rejection of Deduction under Section 80-IA for Captive Power Generating (DG) Units: The AO and CIT(A) rejected the deduction under section 80-IA for Captive Power Generating (DG) units. The Tribunal found that the issue was covered in favor of the assessee by previous decisions and directed the AO to allow the deduction, reversing the CIT(A)'s order. 10. Adjustments for Computing Book Profit under Section 115JA: The AO made several adjustments for computing book profit under section 115JA, which were upheld by the CIT(A). The Tribunal, referencing previous decisions, allowed adjustments related to section 14A and DG sets in favor of the assessee but upheld the disallowance of tax paid under section 115-O. 11. Additional Grounds: - Deduction under Section 80HHC: The Tribunal admitted the additional ground and restored it to the AO for examination. - Reduction in Depreciation: The Tribunal directed the AO to accept the depreciation as calculated by the assessee, following the decision in the previous year treating the transfer as a slump sale. Conclusion: The Tribunal's detailed analysis resulted in several reversals of the CIT(A)'s decisions, primarily in favor of the assessee, based on precedents and interpretations of relevant sections of the Income-tax Act.
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